The euro pares two day of losses as ECB announcement alleviates concerns

By IBT Staff Reporter On 06/30/10 AT 7:27 AM

The 16-nation currency rose for the second day against majors after the ECB said it would provide loans to banks at an interest rate less that estimated which lowered worries that European banks will repay debt with high borrowing cost.

On the other hand, the yen and dollar halted their advance this week on speculations that the lower-yielding currencies prior gains were overestimated.

The dollar index, a gauge of the dollar strength versus a basket of major currencies, plummeted to 85.69 after the breakout of strong support at 85.95, where it has reached a low of 85.59 and a high of 86.26 earlier today. The dollar slipped today ahead of the release of U.S. Chicago Purchasing Manager which is expected to slide in June.

With regard to the euro-dollar pair, it rebounded on the daily and 4-hour charts after getting support at 1.2126 yesterday which helped the pair to surge to 1.2289, where the pair is currently trading. Earlier today, the pair recorded a high of 1.2304 and a low of 1.2164, whereas for the rest of the day the pair is predicted to move between support and resistance at 1.2170 and 1.2315 respectively.

Nevertheless, the euro remains under pressure since European banks have to repay 442 billion euros to the ECB while the 12-month tender will expire tomorrow. If European banks increased their 3-month ECB loans, this means that they still need help and relying on the $1 trillion aid package, especially as Greek, Spanish and Portuguese banks were the largest takers of these loans. In addition, EU 27 leaders will meet two weeks from now to discuss banks stress tests which will determine the ability of European lenders to face finical shocks.

As for the sterling-dollar pair, it is moving to the downside but still traded above 1.50 psychological level. The pair is doing a downside correction to the upside trend that started since mid May as seen by momentum indicators on the daily charts where the pair has been traded in an overbought area. The pair is currently trading at 1.5019, recording a high of 1.5072 and a low of 1.4978, while it is expected to move between support at 1.4960 and resistance at 1.5130.

Relative to the dollar-yen pair, it rebounded slightly today after falling for six consecutive sessions as the pair rebounded when it touched strong support at 88.22 yesterday. Meanwhile, the pair is trading at 88.68, recording a high of 88.75 and a low of 88.37, whereas support is seen at 88.00 while resistance is at 89.25.